Trading and Objectivity

By wtl
Trading and Objectivity

Trading and Objecitivy in trading? Isn’t this contradictional? 

You might argue: “Trading is gambling, guessing, speculation!”

To a certain stretch you’re right. Look the men and women that are gambling with CFD, digital options or micro forex pairs on doubtful forex platforms.

Hold on! Just take a deep breath and assess whether my hypothetical approach has something substantial.

Is objective trading possible in any way?

Please consider that we have three constant trading values:

PRICE, TIME and VOLUME

It is a natural law like E=m*c² or gravitiy. They aren’t debatable! 

The speculation begins here:

“Where’s the price going next?”.  It’s our human nature and our curiosity who wish to understand what will occur later on. This is contributing to so much disorientation and Babylonian confusion since everybody has something to say regarding trading, how it functions, the way to predict and everything to perform best.

My is to follow my logic and see whether you are going to find an extra thought which enable you to boost your trading. In this post I’m not discussing the psychological part of trading.  However you are going to observe how information presentation can facilitate the emotional pressure we’re facing daily in trading.

Trading Objectivity Test

Just take a simple Candle Char and reveal it, with no remark, to allow’ say 10 individuals. Your viewers should provide spontaneous responses to what they view on this chart.

Trading Objecitivity

Trading Objecitivity

It’s amusing and I bet, you are going to get more than 10 unique ideas what is on the graph: Rectangles, channels, congestions, service, Fibonacci retracements, Harami, Dojis, higher highs, lower lows, trend channels,  break outs, chaos, do not understand, etc., etc..

In the conclusion ask your viewers what they think where is the price moving next.

Daniel Kahneman

Kahneman / Tversky shows within their research how our thinking is coordinated. Why we should not trust our instinct and our look for easy answers.

Example:

Just how much can be 7×7? Easy, is not it!

Now, just how much is 243 x 873? You might felt a bit uneasy.

To find the perfect answer you require energy and time to compute. It is not intuitive.


We do not like complexity, uncertainty. The majority of us are trying for simple to digest alternatives, and simplicity. Our subjective understanding and the fear of loss is why we endeavor to decrease the complexity in almost everything we do.


Coming back to trading:

In this gallery you find a few of those”7×7″ graphs.

Please note: I’m not criticizing any indication! They can be automated through approaches which help reduce or eliminate human error. Indicators from Lizardindicators.com.

Within my long enduring “schooling” as trader I asked myself constantly:

“Are lines, percentage levels, time levels, mathematical or other patterns, indicators, candles, clouds, etc. actually objective information or are they constructs, crutches, according to previous information to make my choice”7×7″ like?”

Excerpt from Dr. Brett Steenbarger printed in Forbes clarifies it

“Elite traders in financial markets are extraordinarily gifted in one or the other of these information processing modes–and often both. Some are phenomenal pattern recognizers with unusually fast perception and response times (common among shorter-term participants). Others are unusually skilled data analysts, able to uncover meaningful relationships among variables that predict market outcomes (common among longer-term participants). When we look at how these talented individuals actually conduct their work, we often see both fast and slow information processing modes operating in harmony, as with the poker champion. For example, the rapid daytrader will notice an economic data release and will realize the implications for particular industries. This analytical insight will then fuel short-term trades that take advantage of the fact that others have not yet digested the data. Similarly, the longer-term portfolio manager will have a well-researched view, but can detect when other market participants, who have been leaning the wrong way, are now taking the other side. That creates an unusual opportunity to size up the position.

In both cases, the elite traders succeed because they see things that others miss, and that is a function of how they process information, not just their personality traits.”

Trading Objecitivity depends on the Source of Information

Source of information in trading is the real time traded data information as described in Market Data Platform Protocol 3.0 (MDP 3.0) or similar protocols provided by other exchanges

Based on CME: ” Market data is used to transmit market events such as bids, offers, and trades as well as instrument information and market statistics.”

This is the actual data source for all trading info! It exposes the number of contracts being traded, with the intend to trade, which are being cancelled and are being added and how many contracts are sitting on the limit site of the order book.

Objectivity in Trading means to understand:

  • Which auction site is dominant?
  • Which site is adding or cancelling contracts?
  • How strong is the limit side?
  • Just how many market orders were processed?
  • On which site, Bid or Ask?
  • Is liquidity around?
  • Where’s liquidity?
  • Who’s manipulating?

About the time factor

  • Are there any activities at the moment?
  • Does anybody trade?
  • Is the business done for today?

All this info is offered via the Information Message Protocol or comparable protocols every exchange is sending into a charting program individually determined by which kind of information (Level I, Level II) you’re subscribed.

Trading Objecitivy and Data Presentation

Market data typically includes 90-97percent of market depth updates (order book) and the rest is traded data. That is the reason why observing market depth is so essential. However, this also implies technological challenges. Be aware that most trading charts do not have to take care of market depth data as well as the transactions data has been aggregated into candlesticks. Even if those charts display DoM, they will need to manage only the current snapshot of market depth.

Visualization plays an integral part in knowing what’s actually occurring. It promotes making more and better educated decisions. Studying information in a pictorial or graphic arrangement enables us to grasp difficult concepts with increased simplicity or identify patterns which are otherwise unobservable. Additionally, it helps to ask questions we didn’t ask before.

When coping with market information, I see using visualization in these situations:

  1. At an early phase when cleansing and’ assessing’ the market data. Oftentimes, erroneous decisions are taken since the market data isn’t accurate. Consequently, visualization ought to be considered at the point.
  2. When creating a new trading strategy or refining an existing one. To put it differently, when instructing the pc’ things to do. Studying visualized market information may also be valuable in getting fresh ideas.
  3. When trading live and confronting the necessity to take instant decisions.
  4. When tracking the marketplace in real time and accepting the subsequent choices:
    whether to trade or not in some market conditions or perhaps observe your plan is’ not adapting’ and has to be ceased.

In each the above-mentioned scenarios, having the ideal tools is essential.

Trading Platforms

Here I am showing two trading platforms aimed at distinct kind of dealers. You will find other platforms also but here I’m pointing to platforms using integrated visualization and analytical capacities.

Jigsaw Trader

Jigsaw Trader

Jigsaw Trader

Bookmap

Bookmap Trading

Bookmap Trading

Conclusion

To quote Dr. Brett Steenbarger:

“In both cases, the elite traders succeed because they see things that others miss, and that is a function of how they process information, not just their personality traits.”


Objectivity closely relates to the data source you use and the way how it is presented. The more you utilize aggregated data or “manipulated” data, it’s more difficult to maintain the objectivity set up.


Simplifying very complicated data help our understanding making better logical trading decisions.

Remember Kahneman/Tversky: How much is “7×7” or how much is “243×873”?

According to todays trading technology you can reply 243 x 873 = 212.139 as fast as 7 x 7 = 49.

Looking forward to reading your comments!

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